Anti-poverty plan touted despite unproven math

Lawrence Phillips, 85, in front of his East Price Hill home on Hawthorne. Phillips and his wife Ivory, of 68 years, share the home with their son and his wife. Phillips, originally from Sterns, Ky., has lived in this area for 60 years. Certain ZIP codes in Greater Cincinnati and Northern Kentucky, including East Price Hill, could qualify for extra benefits if they became 'economic freedom zones' as envisioned by U.S. Sen. Rand Paul, an Enquirer analysis shows. The Enquirer/ Liz Dufour

Dempsey playground sits at the corner of Price and Purcell in East Price Hill. Xia Whitfield, 12, and her dad, Darrin (at fence) moved to the neighborhood last year from the Westwood area. They wanted a larger home. Darrin said he likes the area. It's nice and quiet. The Enquirer/ Liz Dufour

Workers rehab what will become four single family towne homes in East Price Hill at Eighth and Purcell. Price Hill Will is the group doing the rehabilitation of the early 1900's building. It's been vacant for several years. The Enquirer/ Liz Dufour

Darryl Miller walks his 8-month-old dog, Lucky, along Purcell in East Price Hill. Miller, moved to the year about a year ago from Batavia to be closer to family. He was also looking for a more urban feel. He said it was too quiet in Batavia. The Enquirer/ Liz Dufour

Roy Joseph, 79, talks about living in East Price Hill. He and his wife, along with their two sons, moved to the area about 13 years ago. The house, on Price, was built in 1935 and they've spent time updating inside and tending to the yard. Joseph still does much of the yard work himself. Next door, a house has sat empty since last October. The yard is overgrown and an abandoned car still sits in the back. sits empty. Joseph said he wishes everyone would take the time to care for their homes. He said the area has gone done a bit over the years since the city has started moving people into the area, referring to Section 8 housing. The Enquirer/ Liz Dufour

A house, on Price in East Price Hill, has sat empty since last October. The yard is overgrown and an abandoned car still sits in the back. Roy Joseph, who lives next door, said he's complained about the fire hazard to the city. He said he wishes everyone would take the time to care for their homes. The Enquirer/ Liz Dufour

A look down Eighth street in East Price Hill.
Certain ZIP codes in Greater Cincinnati and Northern Kentucky, including East Price Hill, could qualify for extra benefits if they became 'economic freedom zones' as envisioned by U.S. Sen. Rand Paul, an Enquirer analysis shows. The Enquirer/ Liz Dufour

Workers from Youth Build, help clear out a house that will be rehabbed by the Price Hill Will group in East Price Hill on Purcell.
Certain ZIP codes in Greater Cincinnati and Northern Kentucky, including East Price Hill, could qualify for extra benefits if they became 'economic freedom zones' as envisioned by U.S. Sen. Rand Paul, an Enquirer analysis shows. The Enquirer/ Liz Dufour

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Sen. Rand Paul of Kentucky speaks at the Hamilton County Republican Club Lincoln-Reagan Day Dinner at the Duke Energy Convention Center in downtown Cincinnati.
The Enquirer/Gary Landers Rand Paul. Senator Rand Paul (R-KY) speaks at the Hamilton County Republican Club Lincoln-Reagan Day Dinner held at the Duke Energy Convention Center in downtown Cincinnati(Photo: The Enquirer/Gary Landers)Buy Photo

Thirty of the 150 ZIP codes in Southwest Ohio and Northern Kentucky hard hit by poverty, unemployment or located in a municipality under fiscal emergency could qualify for these benefits if they became "economic freedom zones" as envisioned by U.S. Sen. Rand Paul, an Enquirer analysis shows.

The Kentucky Republican touts the job creation and anti-poverty proposal as he travels the country considering a possible presidential run. Critics say his plan relies on unproven math, though, and its chances for passage seem remote.

Still, the idea seems worth a shot to some living or working in those 30 local ZIP codes. "I don't know the ins and outs of political economics … but I don't see why it wouldn't work for our neighborhood," said Rhett Harkins, operator of the Bloc Coffee Co. in East Price Hill.

Popular restaurants, such as Primavista and Incline Public House with views of Downtown, have thrived in the hard-scrabble neighborhood among vacant lots and poverty-stricken streets. In the 45204 ZIP code, which covers East Price Hill, the most recent U.S. Census Bureau estimates show 17 percent of the residents are unemployed (compared to 6 percent nationally) and 40 percent live below the poverty line.

Paul's office calculated that the economic zone plan would create enough jobs to generate $413 million for Cincinnati over the next decade and $1.3 billion for Detroit, which is trying to exit bankruptcy. But the senator's staff wouldn't share the formula for how they arrived at those numbers.

Paul, who speaks this week at the Urban League's national convention in Cincinnati, said critics of his plan "need to come up with their own."

"Nobody is doing anything for these big cities," he said in an interview with The Enquirer. "They have no plan to help Detroit. People have ignored the west end of Louisville. People have ignored poverty in Cincinnati."

Paul's plan would allow local governments to name a ZIP code as an "economic freedom zone" if it meets one of three criteria:

An unemployment rate 1.5 percent times the national average over a three-month period.

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Thirty percent of its residents living below the poverty line.

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A political subdivision, such as a city, village or other municipality, facing the possibility of bankruptcy. For The Enquirer's analysis, we included local governments listed by the Ohio auditor as being in fiscal emergency.

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Under the senator's plan, people and businesses in the zones would have their federal income taxes slashed to a flat 5 percent. Payroll taxes that finance Social Security and Medicare would be cut from 6.2 percent to 4.2 percent; the federal government's general fund would compensate Social Security and Medicare.

There are no estimates on how much the plan would cost taxpayers, since it involves revenue cuts. Even Paul's office says it doesn't know. His staff said the senator will likely introduce a revised version of the bill – which is cosponsored by Senate Minority Leader Mitch McConnell, R-Ky. – that caps some of the tax incentives and provides more specifics.

Paul's staff also doesn't give the plan much chance of passing if Republicans remain in the minority in the Senate.

"It is sort of a grab bag of conservative economic ideas," said Jason Bailey, director of the Kentucky Center for Economic Policy, a liberal think tank in Berea. "It is not the sort of proposal you expect to get a bipartisan buy-in in Congress."

12 percent living in area could qualify for freedom zone

The 30 ZIP codes that could qualify as economic freedom zones hold more than 256,000 residents. That's 1 of every 8 or 12 percent of people living in the 15-county metropolitan area, The Enquirer analysis shows.

Eleven ZIP codes in Cincinnati would qualify as freedom zones, with six on the city's West Side, four on the East Side and one straddling Interstate 75, according to the analysis based on Census estimates for poverty and unemployment for 2008-2012 and Ohio state auditor data on fiscal emergencies.

The 45202 ZIP, which includes Downtown as well as Over-the-Rhine and Mount Adams, could become a freedom zone, and companies such as Procter & Gamble could benefit. But large international companies would have to start a subsidiary in the zone that employs at least 25 percent of its staff from inside the zone, Paul said.

"Because big companies have a lot of money, we do want them to come to these communities, but they wouldn't be able to funnel all their international corporate money through these new taxes," Paul said.

The high percentage of Northern Kentucky University students living in Highland Heights contributes to its relatively high unemployment and poverty levels. The same is true in the 45219 zone around the University of Cincinnati in Clifton Heights, University Heights and Corryville, and the ZIP code for Oxford, the Butler County city that's home to the main campus of Miami University.

The remainder of the qualifying postal zones are scattered outside the city, with four each in Clermont and Warren counties, three in Butler County, two in Brown County, and one each straddling Butler and Warren counties and Clermont and Hamilton counties. Three Clermont and both Brown County zones are in Appalachia.

Idea elicits support, shrugs in East Price Hill

Many residents of East Price Hill – a potential economic freedom zone – met Paul's plan with a shrug and a "Why not?"

The $6 million that the city of Cincinnati is investing in building the Incline Theater has raised hopes that more development will come to the neighborhood. Lowering taxes might encourage businesses and residents to snap up some of the vacant lots, said Tom Gamel, a resident of the neighborhood for 60 years and president of the East Price Hill Improvement Association.

"If income taxes are lower, I could see more people encouraged to move into the area, versus in the past where there was a mass exodus," Gamel said. "More people are coming in, but they are coming in at a slower pace."

A dramatic decrease in federal payroll and income taxes, however, would lead to expansion at the Wegman Co., an office furniture company with warehouses in the West End. That's the contention of company Vice President Melissa Wegman. Wegman, a Republican who ran for City Council in 2013, chairs the East Price Hill Business Alliance.

"Any type of tax relief that can be given to any corporation is always a benefit," Wegman said. "It gives a little more breathing room. There are companies like ours that give full benefits ... and there are not a lot of companies like ours that give that kind of opportunity."

The Wegmans couldn't quantify exactly how much money reducing the payroll and income taxes to a flat rate would save their company that employs 52 people.

Not all business owners agreed that Paul's plan would lead to more jobs.

Diane Clark started Fairy Dust Ltd. in East Price Hill 20 years ago. Clark and her daughter parlayed a soap-making business into one selling wholesale glitter products – cosmetics, toys and jewelry. Now they employ seven people in their business on Warsaw Avenue. While slashing federal taxes would save money, it's not going to result in her hiring more people or expanding, she said.

"No matter what your taxes are, if the sales aren't going to go up we're not going to hire anybody," Clark said.

Data and investigations editor Mark Wert contributed.

What areas could be eligible

City or municipality that has officially entered Chapter 9 bankruptcy.

City or municipality "at risk" of bankruptcy or financial insolvency.

Economically depressed areas (zones) with 3-month rolling average of unemployment rates 1.5 times the national average or with 30 percent of residents living below national poverty the level.

"Top 10 High Poverty States," areas (zones) within qualifying states that have a three-month rolling average unemployment rates 1.25 times the national average or which have 25 percent of their residents living below the national poverty level. Ohio, Kentucky and Indiana would not qualify, based on 2013 poverty levels.

City Hall gives mixed reaction

Only two Cincinnati City Council members returned messages seeking comment on U.S. Sen. Rand Paul's proposal.

Cincinnati City Council President Pro Tem Yvette Simpson said tax credits might attract businesses but won't sustain them in low income areas because they'll still need business.

"While I applaud Sen. Paul for his attention to developing small business and addressing chronic unemployment, many of his proposed initiatives aren't practical in urban areas like Cincinnati," said Simpson, a Democrat.

Councilman Charlie Winburn, however, liked Paul's proposal and is in the process of crafting his own legislation that would create zones with lower city taxes. Winburn also liked the lower regulatory burden and education tax credits for low income neighborhoods.

"We need to put up or shut up," said Winburn, a Republican running this year for the Ohio Senate. "There's a lot of rhetoric on doing this stuff, but no one has done anything."

Where zones could be created locally

U.S. Sen. Rand Paul's proposal could affect people and businesses in at least 30 local ZIP codes, an Enquirer analysis shows. Paul's anti-poverty and job-creation plan would cut federal taxes and some regulations in areas with high poverty, high unemployment or with a local government in bankruptcy or in danger of bankruptcy.

• An unemployment rate 1.5 percent times the national average over a three month period.

• Thirty percent of its residents living below the poverty line.

• A political subdivision such as a city, village or other municipality facing the possibility of bankruptcy. For the Enquirer's analysis, we included local governments under listed by the Ohio auditor as being in fiscal emergency.

Under the senator's plan, people and businesses in the zones would have their federal income taxes slashed to a flat 5 percent. Payroll taxes that finance for Social Security and Medicare would be cut from 6.2 percent to 4.2 percent; the federal government's general fund would compensate Social Security and Medicare.

There are no estimates on how much the plan would cost taxpayers, since it involves revenue cuts. Even Paul's office says it doesn't know. His staff said the senator will likely introduce a revised version of the bill – which is cosponsored by Senate Minority Leader Mitch McConnell, R-Ky. – that caps some of the tax incentives and provides more specifics.

Paul's staff also doesn't give the plan much chance of it passing, if Republicans remain in the minority in the Senate.

"It is sort of a grab bag of conservative economic ideas," said Jason Bailey, director of the Kentucky Center for Economic Policy, a liberal think tank in Berea. "It is not the sort of proposal you expect to get a bipartisan buy-in in Congress."